A couple of weeks into hiring a head of M&A, Coinbase is supposedly on the verge of acquiring Earn.com, the get-paid-to-be-spammed-by-ICOs social inbox. The price is rumoured to include a portion of cash worth $30M plus stock and cryptocurrency adding up to 9-figures, but a few "household" names are apparently also in the race so it could heat-up further.

Leaving aside the fact that Earn has raised in excess of $120M in venture funding (which would make this an unprofitable exit for its backers), if those numbers are remotely right it seems like an expensive acqu-hire, despite the indisputable caliber of Balajis & co. So there's probably one or more strategic rationales to justify such a premium over substance. One could be that Earn could provide Coinbase with a widely accessible mass market product to onboard new users into the crypto world: to buy crypto use Coinbase, to earn it use Earn.com, the two can be complementary. Coinbase would then be the bank account for those users who be able to receive their pay directly into it, perhaps one day spend it IRL with a Coinbase debit card. Any other strategic reason?

Anyways, we're speculating over rumours, so let's wait and see...

Nick Szabo is back blogging after a year long break with a two-part series on the history of non-governmental money, with the first part covering various historical examples of IOUs, bearer promissory notes, bank notes and privately minted coins dating all the way back to 1000 AD. 

Nick equates these types of 'money' to the 'higher layers' of the bitcoin ecosystem, with layer 1 instead being analogous to the monetary metal underlaying the IOUs (which will be covered in part ii).

With this post Nick wants to reiterate that understanding the history of money is as important as the economic, technical or cryptographic aspects of 'crypto'.

A great and to-the-point post by Aleksandr Bulkin of Coinfund, highlighting the current misalignment of incentives that encumbers most projects in the space:

"Each new blockchain platform comes to market pre-programmed as a self-fulfilling and self-aggrandizing money machine for its creators and early supporters. This sets the stage for bitter economic wars whose victims are user experience, architectural freedom, and innovation itself."

Aleksandr is working on something to address this problem and we are very much looking forward to hearing more about it.

A good state of the union on the various approaches to solving scalability by Nick Tomaino. 

The efforts to scale Bitcoin and Ethereum are looking incredibly exciting with Lightning, Plasma and Casper, but there's a new wave of scalability-first blockchains and non-blockchain based consensus mechanisms that are starting to emerge and attract mindshare and venture dollars.

Jill borrows a concept from the bond trading world to highlight a big issue most crypto projects will be facing. 

The essence is that, as teams raise all the capital upfront and retain a portion of the tokens on balance sheet, at best their 'long' exposure will diminish as the market moves in their favour (i.e. they will have to sell tokens to fund operations going forward as the network grows in value). At worst they may have to step in and buy more of its own token if the market moves against them. In Jill's analogy they are short convexity while they should be long.

⚠️Warning: long, recommended read (18 mins, high concentration of "flowery" language).

If you just want to get a sense for it though, this paragraph will do:

"What will happen when all of these firms get stuck with “dead” assets on their balance sheet? As I like to say, the shit rolls downhill. More sophisticated investors will find a way to pass their bags to less sophisticated investors, and so on, until eventually everyone is up to eyeballs in their shit and drowning and suffocating in shit and then finally someone pulls the drain on the shitpool and it all gets flushed out or we all end up swimming in shit. That’s a whole lot of shit."

More generally, the case for why 99% of tokens are garbage has largely been made (hopefully well received too) and it is starting to feel no longer contrarian to think that way.

It seems that Binance is playing catch-me-if-you-can with the regulators.

After announcing the (rather vague) plan to launch a decentralized version of itself that could list any token, Binance is relocating to Malta as its new crypto friendly home-jurisdiction. The move is dictated by their appetite to find banking partners in order to start offering fiat on and off ramps, and Malta seems to be welcoming them with open arms. Interestingly the announcement was made a day after receiving a warning from the Japanese FSA for operating an unlicensed exchange, and in the middle of a debate with the Hong Kong regulator about allowing the trading of unregistered securities.

This is yet another example of jurisdictional competition creating regulatory arbitrage opportunities, and of how companies and founders can fluidly move around accordingly. A complex chess game for regulators that we would not enjoy playing...

Saying that Jack is bullish on bitcoin is becoming an understatement. 

“The world ultimately will have a single currency, the internet will have a single currency. I personally believe that it will be bitcoin, probably over ten years, but it could go faster.”

With Square (and Twitter I guess), Jack has a real shot at contributing to make this world view a reality.

We are at the point when all major tech companies need a "blockchain strategy", whatever that means. 

So Google is not just looking from the sidelines for example, they are apparently actively researching and building blockchain solutions internally, and acqu-hiring relevant talent without much fanfare yet, as part of their cloud business offering. These are not just trials apparently, like those run in 2016. Google is looking for ways to actually deploy this technology on a broader scale, though the article is quite poor on details as to what that would look like.

It will be particularly interesting to see what role and impact the GAFAs will end up playing in the already heated crypto talent wars. 

Turing Capital share their 3-legged investment thesis:

1/ Improved blockchain architecture: exploring the trade-offs between security and performance.
2/ Adoption of cryptocurrency: creating a new programmatic language of value.
3/ Effective governance: expanding crypto-economic consensus.

A great overview of the booming Berlin crypto ecosystem. We will be spending and more time there in the next few years.

🇪🇺🤟

Well ouch, Telegram lost once again in court against Putin, and has now 15 days to provide the Russian security services with decryption keys for its service (or to appeal).

Pavel says they will fight and they'll never give the keys away, but it's fairly hurt to believe they will be able to.

I wonder what the $2B+ investors think about this.

A teenager has found a major vulnerability in the Ledger hardware wallets.

There was a bit of drama with the disclosure, but there is a new firmware for the Nano S that addresses the problem. 

I would read the article if you're a security nerd or you own a hardware wallet.

Cryptocurrency security is hard.

A dutch company has figured out a vulnerability in Coinbase's wallet that enabled anyone to "credit" themselves ETH.

It worked by creating a smart contract and having transactions to a Coinbase wallet - but the trick was to have one final transaction in the smart contract designed to fail.

In this way all the other transactions would be reversed, but Coinbase didn't actually pick that up and left you the ETH.

Still unknown if anyone was able to make use of this attack.

Who knows how many more we'll see!

Huge thanks to Nick Grossman for pointing us to Kittyhats, where you can buy your Kitty a fancy hat, obviously (and crucially your Kitty then owns that hat as a sub-asset of sort that is transferable with the Kitty itself). 

In all seriousness, non-fungible tokens are an incredibly exciting development and will enable many new things that were not possible before and that we can't quite imagine yet.

Some seriously heavy-weight economists are supposedly behind a new low volatility crypto currency called Saga, whose Swiss Foundation has just closed a $30M investment from the likes of Lightspeed Ventures and Mangrove Capital. Its advisory board claims to count the chairman of JPMorgan Chase International and former governor of the Bank of Israel, the co-creator of the Vix volatility index and Nobel Prize-winning economist and co-founder of no less than the infamous hedge-fund from the 90-ies Long-Term Capital Management (yep, that one).

Saga is described as a set of smart contracts operating a variable fractional reserve held in IMF’s special drawing basket of currencies at some "reputable and supervised banks" ie there will be more tokens in circulation than can be redeemed for ETH, with the smart contract adjusting the issue price and the reserve ratio on a sliding scale in response to market demand with the aim of maintaining the price within a specified band. Full KYC/AML required to purchase the token.

More details on their whitepaper which we have yet to digest, but at first glance it looks like a hybrid between a legit Tether and one of the algorithmic stablecoins, blending elements of centralization and decentralization.

Preston Byrne obviously thinks it'll never work.

A handy and timely guide on crypto tax if you are a US resident, from the guys at Cointracker. You have a month to figure it out if you haven't yet.

Nice inspirational post by MyCrypto founder Taylor Monahan, on her Bitcoin EXPO talk.

Maybe at the end of the newsletter you do need something like this 🍬

Threshold proxy re-encryption for scalable end-to-end encrypted data sharing.

NuCypher unveiled their PyUmbral implementation that enables developers to perform proxy re-encryption.

Disclaimer: we're investors in NuCypher and think it's stupidly cool.

A decentralized marketplace for Decentraland parcels of virtual land, and here is a tracker of all transactions: nonfungible.com (one went for $170K!)

Decentraland has also released its developer kit for building and visualizing content on virtual land.

Fascinating to see this ecosystem evolve.

More NFT fun, this time to build unique digital avatars.

"Ethmoji is a game built on the blockchain, in which you build unique, digital creations using layers, such as eyes, ears, hair, and hats.
Each adorable Ethmoji is provably unique, meaning that once you own a particular Ethmoji, no one else can own that same composition."

A new product by the Loom Network team (who also developed Cryptozombies): a blockchain Q&A community site that rewards karma points in the form of ERC20 tokens, built on Loom's Dappchain framework.

Paywall, archive link here.

Over the next couple of months more than 100 private fund managers of all size with investments in crypto assets will be under the scrutiny of SEC examiners on the lookout for inconsistencies between investments made and what was promised in their disclosure documents, accuracy of risk disclosures and robustness of security practices. Presumably of relevance to the examination will be any evidence of insider trading activity.

The Israel Securities Authority issued a report where it makes a case for certain types of utility tokens to fall outside of the securities regulatory framework, quite the contrast to the views of their friends at the SEC. Key factors in the distinctions between utility and security are  existence of a secondary market ability to actually use the tokens. 

Some pretty positive noise on crypto coming from the G20 in Argentina, with the usual caveats.

"We acknowledge that technological innovation, including that underlying crypto-assets, has the potential to improve the efficiency and inclusiveness of the financial system and the economy more broadly. Crypto-assets do, however, raise issues with respect to consumer and investor protection, market integrity, tax evasion, money laundering and terrorist financing. Crypto-assets lack the key attributes of sovereign currencies. At some point they could have financial stability implications.".

The G20 has instructed the FATF (Financial Action Task Force on Money Laundering) to generate a report on crypto-assets by July '18, at which point call for regulations will be reviewed. 

What a time to be alive. Donald Trump and Venezuela's sovereign crypto currency in the same news. 🤯

The US President has issued an Executive Order to ban US citizens from purchasing Maduro's Petro, labelled as a blatant attempt to circumvent US sanctions.

For a Twitter coverage of the Petro don't miss @alegw.

Huge congrats to Blockchain Capital for closing their IV fund at $150M, making it the largest venture fund dedicated to this sector.

Unlike Fund III, this one was not raised (even partially) by means of an ICO. The official line is that institutional LPs prefer not having to deal with a coin. The reality is that BCAP has probably not lived up to its promises (for one, it's no longer traded anywhere, so not much liquidity there).

CryptoKitties has spun out of Axiom Zen and raised a $12M Series A from a long list of investors including USV and A16Z and the crypto who's-who.

Both Fred Wilson and Chris Dixon have repeatedly defended one of their favorite investment heuristic in the past, that all breakthrough technologies will initially be dismissed as a toy or look ridicule. So there you go, don't look surprised!

Read USV announcement here.

After Robinhood, here's another example of a startup that has found escape velocity thanks to crypto.

Interestingly the round was all Asian, led by China Minsheng Financial, with participation from SBI Group and Korea Investment Partners at a whopping $800M valuation.

BloXroute Labs has raised raised $1.6M in an equity round from Naval, Metastable, 1confirmation and Flybridge Capital.

They are researching and developing a blockchain-neutral scalability solution that node operators can directly implement without requiring protocol changes, an improvement on relay networks. The proprietary token is meant to be redeemable against a pool that collects 50% of the platform fees.

The announcement sparked an interesting Twitter exchange between BloXroute CEO and Matt Corallo founder of FIBRE, one of the bitcoin relay networks.

Disclaimer: we are LPs in 1confirmation who invested in BloXroute.